Discovery Ltd. Shines: Strong Profits and Dividend Declaration

  • Strong Financial Performance: Discovery Limited reports a 32% increase in normalized headline earnings and a 24% growth in operating profit.
  • Challenges Amidst Uncertainty: The company navigated inflation, interest rate hikes, and energy shortages, demonstrating financial resilience.
  • Dividend Declaration: Shareholders to receive a final gross cash dividend of 110.00000 cents per ordinary share for 2023.
By Lethabo Ntsoane

Discovery Limited, a prominent player in the South African financial landscape, has announced robust financial results for the fiscal year ending on June 30, 2023. The company’s performance is underscored by its resilience in the face of macroeconomic uncertainty and its commitment to delivering quality earnings and cash flow.

Strong Financial Performance Amidst Economic Uncertainty

The year 2023 posed several economic challenges, including prolonged inflationary pressures, rising interest rates, a remarkably strong US dollar, and increasing consumer pressure. These factors combined to create a cost-of-living crisis in many regions and constrained economic growth, following short-lived rebounds after the COVID-19 pandemic. In South Africa, the situation was further complicated by severe energy shortages.

Despite these challenges, Discovery Limited achieved significant milestones in its financial performance:

Key Financial Highlights

MetricJune 30, 2023June 30, 2022Change
Normalized Profit from Operations (R million)R11,661R9,384+24%
Profit from Operations (R million)R8,662R7,858+10%
Normalized Headline Earnings (R million)R7,678R5,816+32%
Earnings per Share (basic) – (cents)785.4825.5-5%
Headline Earnings per Share (basic) – (cents)834.3792.4+5%
Normalized Headline Earnings per Share (basic) – (cents)1,166.7885.5+32%
Net Asset Value (R million)63,97453,555+19%
Embedded Value (R million)98,17686,258+14%
Embedded Value per Share (R)149.11131.29+14%

Note: All figures are unaudited and presented in South African Rand (R).

These impressive results can be attributed to the company’s strong premium and revenue growth, with core new business annualized premium income (API) increasing by 12%. Additionally, positive customer retention and indexation contributed to this growth, while total non-insurance income increased by a substantial 44%.

Business Performance Across Composites

Discovery Limited operates across three business composites: South Africa (SA), United Kingdom (UK), and Vitality Global (VG). Each composite delivered strong financial results:

  • SA Composite: Normalized operating profit increased by 22%, reflecting robust premium and revenue growth.
  • UK Composite: Normalized operating profit increased by 21%, with the UK benefitting from a weaker rand during the year.
  • VG Composite: Vitality Global experienced remarkable growth, with a 74% increase in normalized operating profit, primarily driven by favorable currency exchange rates.

Impact of Interest Rate Changes

The company noted that economic assumption changes, particularly related to interest rates, had an impact on headline earnings growth. While these changes did affect headline earnings, they had no significant impact on the group’s liquidity, cash flows, or solvency.

The sharp rise in nominal and real interest rates in South Africa and the UK negatively affected headline earnings growth. In the UK, a hedging strategy proved effective, resulting in some gains and increased discretionary margins. However, in South Africa, economic assumption adjustments for Discovery Life amounted to R2,811 million, gross of tax.

Financial Resilience and Strong Balance Sheet

Despite economic challenges, Discovery Limited demonstrated financial resilience throughout the year. Central liquidity remained strong, even after a R600 million reduction in debt. The financial leverage ratio (FLR) improved to 20%. Organic cash generation was robust, driven by growth in quality earnings, a significant recovery in Discovery Life’s cash generation following elevated COVID-19-related claims in the prior period, and cost reduction in new initiatives.

These financial strengths have supported the company’s decision to recommence dividend payments to shareholders.

Dividend Declaration

The board of directors of Discovery Limited declared a final gross cash dividend of 110.00000 cents per ordinary share for the fiscal year ending on June 30, 2023. This dividend, sourced from income reserves, represents a significant milestone for the company. However, it is important to note that a dividend withholding tax of 20% will be applicable to all shareholders who are not exempt.

The salient dates for the dividend are as follows:

  • Last day to trade in order to receive the dividend: October 10, 2023
  • Shares commence trading “ex” dividend: October 11, 2023
  • Record date: October 13, 2023
  • Payment date: October 16, 2023

During the period from October 11 to October 13, 2023, share certificates may not be dematerialized or rematerialized.

Conclusion

Discovery Limited’s strong financial performance and resiliency in the face of economic challenges highlight its commitment to delivering quality earnings and shareholder value. As the company recommences dividend payments, it further strengthens its position as a key player in the South African financial sector. Investors and stakeholders are encouraged to review the complete audited financial statements for a comprehensive understanding of the company’s performance and outlook.

Join Our Newsletter
Subscribe to our newsletter and stay updated.

Sponsored

Start trading with a free $30 bonus

Unleash your trading potential with XM—your gateway to the electric world of financial markets! Get a staggering $30 trading bonus right off the bat, with no deposit required. Dive into a sea of opportunities with access to over 1000 instruments on the most cutting-edge XM platforms. Trade with zest, at your own pace, anytime, anywhere. Don't wait, your trading journey begins now! Click here to ignite your trading spirit!

Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted: Email: lethabo@rateweb.co.za Twitter: @NtsoaneLethabo